U.S., European stocks edge higher despite U.S. tax-cut doubts

NEW YORK (Reuters) - Gains in technology shares helped push the U.S. stock market to record highs on Wednesday despite concerns that Republicans’ plans to cut corporate taxes may not win congressional approval as early as expected, prolonging a rally that started in Asia and sent the MSCI All World Index to a record high.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., November 8, 2017. REUTERS/Brendan McDermid

The dollar edged lower against a basket of currencies, while European shares were flat, led by a broad decline in bank stocks.

The Dow Jones Industrial Average .DJI rose 6.13 points, or 0.03 percent, to end at 23,563.36, the S&P 500 .SPX gained 3.74 points, or 0.14 percent, to 2,594.38 and the Nasdaq Composite .IXIC added 21.34 points, or 0.32 percent, to 6,789.12.

Financial stocks in the S&P 500 .SPSY fell 0.6 percent, dragged down in part by concerns that a flattening yield curve would eat into profits before a U.S. tax cut could take effect.

Derek Halpenny, head of global markets research at Mitsubishi UFJ in London, said he was dubious about the progress of the tax overhaul bill proposed by President Donald Trump’s administration, which includes a big cut in corporate taxes.

“The initial phases of discussions within the House (of Representatives) have brought up a lot of divisions and problems. ... If the story is true that they’re considering a delay of one year to the corporate tax cut, those big differences will need to be sorted,” he said.

A report in the Washington Post late Tuesday said Senate Republican leaders were considering a one-year delay in implementing the corporate tax cut.

Francois Savary, chief investment officer at wealth manager Prime Partners, said the doubts over the tax issue reinforce the case for some consolidation in the market, which has been fully priced for good news.

“It’s something that would impact the domestic stocks in the U.S. and would be a setback for the market in general, (and) it’s more than stock-specific as people would reassess earnings growth expectations to the downside,” he said.

The U.S. two-to-10-year Treasury yield curve hit its flattest in a decade, potentially cutting into the profits of banks, which borrow money at short-term interest rates in order to lend it out at longer terms. US2YT=RR US10YT=RR

Such a move could also imply that investors are expecting a slowdown.

Technology stocks .SPLRCT rose 0.5 percent, boosted by a 2.2 percent gain in Qualcomm Inc (QCOM.O), which was upgraded by analysts after competitor Broadcom made an unsolicited $103 billion takeover bid for the company.

Benchmark 10-year U.S. Treasury notes US10YT=RR fell 7/32 in price to yield 2.3325 percent, from 2.307 percent late on Tuesday.

European bonds were also snared by the yield-curve flattening, with yields on long-term German bonds falling to two-month lows.

This was a reversal of the trend when Trump was elected a year ago. Yields and stock prices jumped in late 2016 on what was dubbed the “Trumpflation” trade: a bet on rising rates, inflation and securities prices in the United States and beyond.

Analysts believe that a flattening yield curve at a time when the Federal Reserve is hiking U.S. interest rates is a sign that investors are concerned about the sustainability of economic growth and inflation in the world’s biggest economy.

In the European session, the two main banking indexes suffered the most, with the euro zone index .SX7E falling 0.1 percent and the Europe-wide banking equivalent .SX7P also dropping 0.1 percent, dragging an index of pan-European stocks 0.05 percent lower.